The cost-of-living crisis has seen the Australian drinks industry swallow a profits plunge of more than 25% according to a new report released by inventory management software provider Unleashed.

The Unleashed Manufacturing Report showed a difficult outlook across Australian manufacturing industries, where an increase in sales did little to mask an overall -17% YoY drop in profitability (1 July 2023 to 31 June 2024).

The food and beverage industries faced an even steeper profitability decline than the average, with food profit margin down -25.28% and beverage even further at -28.2% YoY.

Unleashed Head of Product Jarrod Adam said: “With high operational costs at the best of times, the food and beverage industry is in a tough battle against inflation. Add in a decreasing sales pipeline, rising excess stock levels and a weak economy, and you have a recipe for an industry facing a severe drop in profit margin.”

The inflationary environment saw the average business make a return of $2.1 per dollar invested in inventory (measured as Gross Margin Return on Inventory, or GMROI) between 1 July 2023 and 31 June 2024. 

This is a significant fall from the $2.90 average return recorded between 1 July 2022 and 31 June 2023.

For the Australian beverage industry the average return on dollar invested in Q2 2024, was $2, a severe drop from the $3.4 return on dollar invested seen in Q2 2023.

In the last eight quarters, only once has the Beverage Industry GMROI not declined.

Sales revenue also dropped down to $408,586 in Q2 2024 down from $583,747 in the previous quarter.

“This is a strong industry that is deeply connected to its customers” Adam said. “But selling a consumer good in times where people everywhere are tightening their discretionary spending is extremely difficult. The beverage industry is bearing the full brunt of that difficulty.”

Breweries battle to stay afloat

Stomping Ground brewery co-founder Guy Greenstone said businesses have had to swallow increased costs to stay afloat in a competitive market.

“In some cases we’ve had to drop prices just to stay relevant, it’s tough out there and margins are definitely being eroded,” he said.

“You just have to become a bit more efficient, a bit more lean. Manufacturing practices, we’re just trying to do more with less.”

But with sales starting to climb, there was some light on the horizon for the beverage industry, he said.

“There’s so much doom and gloom out there,” he said. “But you can’t throw your hands up in the air and go ‘woe is me’ – you’ve got to go ‘how do we go about operating in this new environment?’ You’ve got to rely on your assets – great brand, great products, great people. You’ve got to keep being as upbeat and as efficient as you can to ride it out.”

Sales revenue starts to climb

Adam said that despite the drop in profit margin, overall sales revenue is starting to climb as business confidence recovers.

Across all industries sales increased 7.9% from the previous financial year in Australian manufacturing. This is a large recovery from the -8.7% drop that occurred in the 2021/2022 financial year.

In any normal environment, rising sales numbers may paint a nice picture, but the current thin profit margins mask the real impact to businesses’ pocketbooks, said Adam. 

“For every issue a SMB business solves, two more issues grow in its place. Ordinarily a strengthening sales pipeline would give a business some breathing room, but rising costs have largely cut this out.”

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